[jahnesta8]

Brand Co. incurred the following research and development project costs at the beginning of the current year:

Equipment purchased for current and future projects $100,000

Equipment purchased for current projects only $200,000

Research and development salaries for current project $400,000

Equipment has a five-year life and is depreciated using the straight-line method. What amount should Brand record as depreciation for research and development projects at December 31?

a. $20,000

b. $60,000

c. $140,000

d. $0

So, obviously you do not capitalize R&D costs, you expense them as incurred. For this reason I went with option D, $0. Becker says the answer is A, $20,000. They came to this conclusion by depreciating the $100,000 equipment that has both a current and future use. I understand that you cannot assume it will be used for R&D in future periods, so you must capitalize. My thinking is that a company can simply state it may use the asset in future projects and understate NI by whatever the remaining future depreciation expense is. I would have thought conservatism would dictate the full expense.

[Gatorbates]

Probably happens in the real world, but for the exam, it specifically says the asset had alternative future uses, which means capitalize.

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[Gatorbates]

Probably happens in the real world, but for the exam, it specifically says the asset had alternative future uses, which means capitalize.

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[musicamor]

For this question, you must stick to the Matching Principle. Since the equipment is deemed to have “future use,” the equipment will be capitalized and depreciation will be matched to revenue in future periods.

Texas CPA - licensed in 2012!!!

[musicamor]

For this question, you must stick to the Matching Principle. Since the equipment is deemed to have “future use,” the equipment will be capitalized and depreciation will be matched to revenue in future periods.

Texas CPA - licensed in 2012!!!

[Author]

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